DEKA IMMOBILIEN MONITOR - ISSUE 2019 - DEKABANK DEUTSCHE GIROZENTRALE
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3
Deka Immobilien Monitor
Issue 2019
DekaBank Deutsche Girozentrale 1
2
Editorial
Dear Reader,
There are many signs indicating that global economic growth is slowing slightly. The moderate mone-
tary policy used by the ECB and US Federal Reserve (Fed) suggests a soft landing – i.e. just a slowdown
in growth rates. The markets and economy have been carefully prepared over a very long period of
time for a normalisation of monetary policy. There are, however, many risks for the economy: protec-
tionist threats and sanctions by the US government, geopolitical tensions and Brexit. The real estate
business is still running well due to declining unemployment rates generating robust demand in office
markets, together with moderate construction activity. Falling vacancy rates are causing rents to rise.
Rent growth continued to broaden in 2018. With a few exceptions, 2019 will also likely bring further
rent increases. Rent growth can, however, be expected to slow overall in following years. European
retail is benefiting from robust consumption. The online boom, however, is putting pressure on physical
retail and worsening existing structural problems. This especially applies to clothing retail, which tradi-
tionally represents the backbone in prime locations. Retail parks with large food market anchors are less vulnerable to online retail and
are increasingly becoming the focus of investors. For logistics markets, the online boom is both a blessing and a curse at the same time:
very high demand for ever larger logistics spaces along with increased pressure on yields. The spread between logistics and office yields
has shrunk to a level not seen since 2007. Hotel markets recorded further increases in room prices and revenue in 2018. Occupancy is
very high compared to the long-term average. Real estate remains very desirable due to a lack of profitable alternatives, as underscored
by the continued high level of investment in all asset classes. Uncertainty about the expected interest rate turnaround has, however,
increased in Europe. We expect property returns to rise again, after a lag, if the ECB increases interest rates. We nevertheless expect
that the interest rate increases will be moderate and returns will settle again at a historically low value. Abrupt price corrections should
therefore not be expected in real estate markets. Instead, we expect price increases to be gradual and return increases to be relatively
small. In the US, the continuous interest rate increases previously performed by the Fed have so far had no major effect on investment
markets. However, given that the rent cycle is already quite long and the difference between cap rates and government bond yields is
comparatively small, we expect US property returns to increase starting in 2019. Due to the caution exercised by the US Federal Reserve
(Fed), the increases will also likely remain within limits.
Sincerely,
Dr Ulrich Kater
Chief Economist
3
Contents and legal notice Management summary 5 Global environment 6 Country strategy 7 Return prospects 8 Australia 10 Belgium 11 Germany 12 Finland 13 France 14 Italy 15 Netherlands 16 Austria 17 Poland 18 Sweden 19 Spain 20 Czech Republic 21 UK 22 USA 23 European housing markets 24 European retail markets 26 European hotel markets 28 European logistics markets 30 Forecasts 32 Published by DekaBank Deutsche Girozentrale Mainzer Landstr. 16, 60325 Frankfurt Imprint: https://deka.de/deka-gruppe/impressum Internet: https://deka.de/deka-gruppe/research Authors Daniela Fischer, daniela.fischer@deka.de, (069) 71 47 75 49 Gunnar Meyke, gunnar.meyke@deka.de, (069) 71 47 58 02 Nikola Stephan, nikola.stephan@deka.de, (069) 71 47 10 23 Andreas Wellstein, andreas.wellstein@deka.de, (069) 71 47 38 50 Editorial deadline: 15/01/2019 Legal notice: DekaBank has prepared these statements, including assessments, solely for the information of the recipient. The information presented here does not constitute an offer, an invitation to subscribe to or purchase financial instruments, or a recommendation to purchase. The information or documents are not intended to form a basis for any contractual or other obligations, nor are they a substitute for (legal and/or tax) advice, and the act of sending the information or documents does not constitute the provision of any advice of the nature described. All information has been carefully researched and compiled. The assessments presented here were made to the best of our knowledge and belief and (in some cases) derive from or are based on publicly available sources that we consider reliable, but are unable to verify. We accept no liability for the completeness, timeliness and accuracy of the information and assessments presented here, including legal information. The views ex- pressed here reflect DekaBank's current assessments at the time this presentation was prepared and are subject to change at any time without notice. Each recipient should make his or her own independent evaluations, assessments and decisions. In particular, each recipient is asked to perform his or her own independent examina- tion and/or obtain independent expert advice, and come to his or her own conclusions with respect to the economic benefits and risks, taking into account legal, regulatory, financial, tax and accounting aspects. Any exchange rates or prices mentioned are subject to change and are not an indicator of tradable exchange rates or prices. Please note: Past performance is not a reliable indicator of future performance. This Information, including assessments, may not be reproduced or disclosed to other persons in whole or in part without written approval by DekaBank. 4
Management summary
Global investment markets European hotel markets
■ Thanks to higher volumes in the US and Asia-Pacific, glob- ■ Hotel markets also predominantly recorded increases in
al investment volume will likely be around USD 730 billion room prices and revenue in 2018. Occupancy rates were
higher in 2018 than the previous year. generally very high from a historical point of view.
■ The investment volume for retail real estate was the same ■ Paris and Brussels were the leaders in RevPAR growth, with
as the previous year. Office and logistics property each rec- Barcelona and Düsseldorf recording the poorest perfor-
orded 10% increases up to and including September, while mance.
hotels declined 5%.
■ For German metropolitan areas, Hamburg and Frankfurt
■ Logistics yields in Europe continued to decrease. The have the largest absolute project pipelines, while Düsseldorf
spread versus office yields was at the lowest level since 2007. will have the largest future percentage increase in existing
Office and retail property yields have started to bottom out. stock. The lively construction activity will likely affect future
Since the central banks are only making cautious changes to occupancy rates and limit the growth in returns.
their monetary policy, the countermovement will likely be
moderate.
■ The times when extraordinarily high returns were earned European logistics markets
due to yield compression are now over. Rental income will
become more important in the future due to the lack of ■ The robust economy and online boom are generating a
increases in capital value. The outlook is better for office real steady, high level of demand, mainly due to logistics service
estate in Europe than in the US in 2019/20. providers and retail (incl. e-commerce). Space optimisation
and consolidation continue to be significant drivers of space
take-up.
Office markets worldwide ■ The vacancy rate continues to be low in spite of a record
volume of completions. Companies with a need for modern
■ In Europe, robust demand, ongoing space conversion and space must choose from new construction projects. The
continued moderate construction activity are causing vacan- developer market is also receiving a boost from high investor
cy rates to fall and rents to rise. Net additions will increase demand.
again in the future.
■ The potential for rent increases remains modest, in part
■ The stable economic environment continues to provide due to competition from new construction projects.
support for US office markets. New construction volume is
rising moderately and rent increases will likely continue to
slow in coming years. European housing markets
■ In Asia, Singapore in particular will likely record even larger
■ In the German residential market, large urban areas in
rent increases in 2019/20. In Australia, we only expect prime
particular continue to show a gap between supply and de-
rents to increase moderately in Sydney and Melbourne.
mand.
■ In the Eurozone, the recent rapid price increases in Ger-
European retail markets many, Ireland, the Netherlands and Austria are particularly
noteworthy.
■ Polarisation between high-priced sellers and discounters
■ Due to rising construction and personal costs, the higher
and warehouse consolidation are continuing. The sector mix
level of construction activity is not reducing price pressure.
in prime locations is increasingly moving away from clothing
The increase in financing costs due to the exit from low
towards more restaurants, pharmacies and fitness studios.
interest rate policy will, however, likely dampen future price
■ The shopping centre pipeline remains modest, with a focus changes.
on repositioning and modernisation of older properties.
■ In spite of the decrease in customer traffic, physical retail
remains important in the age of digitalisation. Increasing cost
pressure due to the implementation of new technologies and
high rents in prime locations are, however, limiting the po-
tential for rent increases.
5Global environment
There are many signs indicating that global economic growth in 2018 to be followed by further increases in 2019/20. The
is slowing slightly. After 3.7% in 2018, we forecast a de- ECB is still following a slow turnaround. Bond purchases will
crease to 3.4% in 2019 and 3.3% in 2020. The moderate end in 2019 and we expect the first increase in the deposit
monetary policy used by the ECB and US Federal Reserve rate in March 2020 and the first increase in the money mar-
(Fed) suggests a soft landing – i.e. just a slowdown in growth ket rate half a year later. In the US, we do not expect any
rates. The markets and economy have been carefully pre- appreciable increase in long-maturity Treasury yields in 2019,
pared over a very long period of time for a normalisation of since the bond markets have already largely priced in the
monetary policy. The new movement towards protectionism increases in the key interest rate and national debt. Long-
in the world economy has so far not had a major effect on maturity yields can be expected to increase moderately in the
economic activity. The volume of tariffs is (still) too small and Eurozone, although developments in Italy will likely have a
there are sufficient ways to circumvent them. Additional dampening effect. Even though financing expectations have
measures would mostly affect open economies like China deteriorated slightly in the real estate market, the low inter-
and Germany. Overall, the foreseeable negative effect of est rate environment should ensure that conditions remain
tariffs on the global economy is below the level that would attractive for investors in Europe in 2019.
trigger a downswing. Economic activity in the Eurozone is
based on stable private consumption. The growth in capital Gross domestic product by region
investments is continuing, although at a slower rate than
immediately after the crisis. Net exports are having a braking % yoy
Forecast
effect, because imports are once again increasing faster than 12
exports. Overall, we expect the Eurozone to record economic 9
growth in the area of 1.6% per year in 2019/20. The trade 6
conflict with the US, lack of clarity with respect to the United 3
Kingdom’s exit from the EU, the situation in Italy and ongo-
0
ing protests by the yellow vests in France nevertheless pre-
-3
sent considerable risks for the economic outlook. The fiscal
-6
policy of the new Italian government is capable of triggering 07 08 09 10 11 12 13 14 15 16 17 18 19 20
a new euro crisis. Ein Satz mit falscher Schriftart und -farbe. EU28 USA Asia ex Japan World
Growth is being limited by the deterioration in monetary
Source: National statistical offices, IMF, DekaBank forecast
conditions and high level of capacity utilisation in the US
economy. We expect gross domestic product to increase
2.3% in 2019 and 1.7% in 2020. Key interest rates
%
The US Federal Reserve began reducing its expansive mone- 6
Forecast
tary policy in 2015, initially by allowing bond purchases to 5
expire and then using interest rate increases. In 2018, the 4
ECB also began its exit, initially by reducing bond purchases. 3
This reduced the strength of one of the key drivers of capital 2
markets, which had received extraordinary support from the 1
unconventional measures used by the central banks. The 0
central banks nevertheless have a great deal of freedom in -1
how they can structure their exit, given that inflationary 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
pressures remain very low. They will use this freedom to Euroland USA* UK
minimise the negative effects on the economy. In the US, we Source: Bloomberg, DekaBank forecast average *Since Dec. 2008 interval
expect the four interest rate increases performed by the Fed
6Country strategy
An assessment of the structural attractiveness of real estate for investors with relatively low risk appetites. All four of
investments in the individual countries is performed below these countries are in the “core plus” (80 to 89 points) seg-
based on investment risks and return prospects. DIRECS ment. While the growth forecasts for the first three countries
(Deka Immobilien Real Estate Country Score) is used as a risk are relatively good, the prospects are very poor for Japan,
measure for commercial property investments at the country the country with the second-largest commercial real estate
level. It combines a number of indicators reflecting macroe- market worldwide. In Europe, Sweden and Norway have
conomic, institutional and political risk factors and provides a attractive risk-return profiles. Although both countries have
point score between 0 (highest risk) and 100 (lowest risk) for slightly worse risk scores than the third Scandinavian coun-
each country. Potential future returns are estimated using try, Denmark, they have the advantage of better growth
forecasts for the real growth in gross domestic product up to forecasts and also have somewhat larger real estate markets.
2023 inclusive. This country level analysis does not include Their neighbour to the east, Finland, is somewhat less attrac-
regional or real estate-specific factors in either of the two tive in terms of risk-return profile and market size. Other
measures. European countries in the “core plus” segment include Swit-
zerland, Belgium and Luxembourg, with growth prospects
With respect to the risk assessment, eight countries are cur- being particularly good for Luxembourg. The next risk class,
rently allocated to the “core” segment (min. 90 points). the “balanced” segment (70 to 79 points) includes Ireland,
Canada and the US are among the countries with the lowest Spain and Italy, three peripheral Eurozone countries, with
investment risk. Both of these North American countries Ireland expected to have the fastest economic growth. Of
have similar growth prospects and therefore nearly identical the two other countries, Italy has the larger commercial real
risk-return profiles. The two countries nevertheless differ estate market, but Spain has a significantly better risk-return
significantly with respect to the estimated size of their com- profile. Portugal cannot match its neighbour Spain, particu-
mercial real estate markets, as the US has by far the largest larly with respect to risk score, and has been assigned to the
market worldwide. Five of the eight countries in the “core” “value add” segment (50 to 69 points). Another Eurozone
segment are in Europe. Three of them, the Netherlands, country, Austria, also belongs to the “balanced” risk class, as
Germany and France, are members of the Eurozone, and the does the Czech Republic, which has a considerably better
other two are the United Kingdom and Denmark. The Neth- risk score than Poland and Hungary (both in the “value add”
erlands has the most attractive risk-return profile in the risk class). Poland nevertheless has the best growth prospects
group. Although British return prospects are decreased by and largest real estate market of the Eastern European coun-
the upcoming exit from the EU, its risk-return profile is actu- tries mentioned. Chile is the only Latin American country to
ally slightly better than the two heavyweights in continental have secured a spot in the “balanced” segment. Mexico, the
Europe, Germany and France. Australia is expected to have country with the largest market in the region, cannot quite
by far the fastest economic growth of the countries in the match Chile, either in terms of its economic growth forecast
“core” segment. Singapore, New Zealand, South Korea and or risk score.
Japan are other investment targets in the Asia-Pacific region
Growth outlook and structural risks of selected countries
4
LUX
AUS IRL CHL POL
2019-2023 (real p.a. in %)
3 NZL
GDP growth forecast
KOR
SGP CZE
MEX
NLD SWE NOR HUN
2 USA FRA
CAN DNK FIN AUT PRT
CHE ESP
GBR DEU BEL ITA
1 JPN
0
95 90 85 80 75 70 65 60
DIRECS risk score
Source: IMF, DekaBank; Circle size corresponds to estimated size of the commercial real estate market
7Total Return prospects
To estimate current and future capital appreciation in office on the forecast for yield increases, losses should be expected
real estate markets, changes in capital values are analysed starting in 2021. In the short term (2019/20), returns will
below. As there is no comprehensive data for sale prices at likely be in the range of 2 to 4% per year in most locations,
market level, the capital values are mainly derived from with Amsterdam having the best return prospects. Over a
prime rents and yields. In doing so, it must be noted that this five-year period, the overwhelming majority of locations will
tends to overestimate the actual performance of the mar- likely record small losses. The two London submarkets are
kets. In order to calculate the forecast total return, current expected to have the highest returns. They have been de-
rental income - as a percentage of net initial yields - and coupled from the trend in the other European markets since
location-specific expenses are considered in addition to capi- the Brexit vote in 2016, so the potential for value corrections
tal values. should be lower. The forecasts for London are nevertheless
highly uncertain due to the uncertainty involved in the Brexit
process.
Europe
Europe: Total return by region*
The trend of rising capital values remained unbroken in Eu-
%
rope in 2018. With the exception of the two London sub-
25
markets, all 25 of the office markets analysed recorded in- 20
Forecast
creases in the first three quarters of the year. The size of the 15
increases nevertheless slowed significantly. While more than 10
half of the locations were still recording double-digit per- 5
centage increases in 2017, Milan was the only market to 0
-5
achieve this by the third quarter of 2018. Based on the highs
-10
reached in 2007/08, Berlin continues to be the solitary leader 11 12 13 14 15 16 17 18 19 20 21 22 23
in performance, with capital values 155% higher than the German Big 7 London (City+WE)
value at that time. It is followed by Stockholm, which rec- Europe ex Germany, UK
Source: PMA, DekaBank forecast; * stock-weighted
orded an increase of 118%. Capital values have approxi-
mately doubled in Stuttgart (+112%) and Amsterdam
(+99%) compared to the previous cycle. Capital values in the
third quarter of 2018 fell slightly below their reference values USA
in the Spanish locations, but most significantly in Warsaw (-
18%). Changes in capital values were once again mixed in the US in
the first nine months of 2018. Thanks to significant reduc-
Europe: Capital values tions in cap rates, Chicago was the leader with an increase in
capital values of 18%. In Downtown Manhattan, a small
Index* decrease in the cap rate combined with large rent increases,
300
so that capital values also recorded a double-digit percent-
250
age increase. Capital values fell moderately, on the other
200
hand, in Washington D.C. and Los Angeles. Compared to
150
the highs in 2007/08, Downtown Manhattan, San Francisco,
100
Chicago and Atlanta had the most significant increases of 45
50
0
to 55%, while Midtown Manhattan and Houston were only
06 07 08 09 10 11 12 13 14 15 16 17 18 slightly above the values at that time.
Berlin Stockholm London City
Paris CBD Madrid After two years with major decreases in total returns, a sig-
Source: PMA, DekaBank; * High point 2006-08 = 100 nificant increase should once again be recorded in 2018. The
value-weighted average will likely increase from around 4%
The smaller value increases likely led to lower total returns in in the previous year to more than 7.5%. This is based on the
2018 than the previous year. Yield decreases and rent in- reduction in cap rates in around half of the eleven locations
creases, both in Germany and the rest of Europe (not includ- analysed, with Chicago and Houston standing out with par-
ing the UK), should nevertheless be adequate to generate ticularly strong yield compression. Rent increases, however,
returns in the range of 10%. This is an impressive value likely slowed in 2018, thereby having a negative effect on
given that the upswing has already lasted nine years in Ger- the bottom line. We expect this trend to continue in coming
man office markets. In view of the level of capital values years until rents remain unchanged in 2021 – with increases
achieved and the prospects of moderate increases in interest in this return component only likely after this point has been
rates, returns should fall considerably in coming years. Based reached. The return of rising cap rates in the investment
8Total Return prospects
market will likely not just reduce the return contribution large increases in value in the first three quarters of 2018.
from this source, but instead already turn it negative in This put the Japanese capital above the high point reached in
2019. Increasing interest rates should produce moderate 2007 for the first time again. The rental market was the
yield increases in coming years. The losses should, however, main factor preventing this mark from being reached earlier.
be limited due to the caution being exercised by the central At the end of the period, prime rents were still around one
bank. Atlanta has the best return prospects for the next two quarter below their level in 2007. Rents are even further
years and next five years. below the reference level in Singapore, so that capital values
at the end of the period were still 16% below the high in
USA: Capital values 2008. In Seoul, the reference value has already been exceed-
ed by one third, although the increase in value continued to
Index* weaken in the first three quarters of 2018.
200
150 Total returns will also likely fall in the Asia-Pacific region in
100
coming years. Rent increases will likely weaken and decreas-
es in prime yields almost slow to a stop. The slight increase in
50 yields expected at the beginning of the next decade should
0 lead to small losses in total returns in some locations. Bris-
06 07 08 09 10 11 12 13 14 15 16 17 18 bane and Perth likely have the best return prospects, both in
NY Manh. Midtown San Francisco the short term (2019/20) and over a five-year period. The
Washington D.C. Chicago short-term prospects are also good for Singapore due to a
Source: CBRE-EA, DekaBank; * High point 2006-08 = 100 forecast of large rent increases.
USA: Total return* Asia-Pacific: Capital values
% Index*
25 200
Forecast
20 150
15
100
10
5 50
0 0
06 07 08 09 10 11 12 13 14 15 16 17 18
-5
11 12 13 14 15 16 17 18 19 20 21 22 23 Melbourne Perth Tokyo
Singapore Seoul
Source: CBRE-EA, DekaBank forecast; *stock-weighted Source: PMA, DekaBank; * High point 2006-08 = 100
Asia-Pacific: Total return by region*
Asia-Pacific
%
25
Capital values continued to increase in Australia in the first 20 Forecast
three quarters of 2018, although at a considerably slower 15
pace. Only Perth, the location with the smallest value in- 10
5
crease in 2017, recorded a slightly higher rate than the pre- 0
vious year. Using the highs in 2007/08 as a reference, the -5
Australian market is now divided into two segments. While -10
-15
Sydney and Melbourne are now 80 and 92% above their 11 12 13 14 15 16 17 18 19 20 21 22 23
values at the time, capital values in the commodity-
Australia Tokyo, Seoul Singapore
dependent locations of Brisbane and Perth are 13 and 23%
below their reference values. Tokyo and Singapore recorded Source: PMA, DekaBank forecast; * stock-weighted
9Australia
Economy first three quarters of 2018. Rent increases will likely slow in
2019/20. Rents rose moderately in Brisbane and remained
The economic upswing is in its 27th year in Australia, an unchanged in Perth. Rent increases will likely not pick up
international record length. After a relatively weak year in here again before 2020 at the earliest.
2017, the economy grew strongly again in 2018, at least in
the first half of the year. Economic growth was, however, Vacancy rate
disappointingly weak in the third quarter. Higher mortgage
%
rates were presumably to blame for slowing the increase in
25
consumption. In any case, the growth in equipment invest-
ment was unaffected. Economic growth will likely be slower 20
in 2019 and 2020 than in previous years. Due to continued 15
moderate inflation, the Royal Bank of Australia decided not
to perform any key interest rate increases yet in 2018 and 10
will likely not begin these increases until the middle of 2019. 5
0
Gross domestic product 07 08 09 10 11 12 13 14 15 16 17 18
Brisbane Melbourne Perth Sydney
% yoy
4 Source: PMA, DekaBank
3
Investment market
2
The transaction volume for office properties was AUD 13.3
1 billion nationwide in the first three quarters of 2018, repre-
senting an increase of 6% over the same period in the previ-
0 ous year. The office segment contributed 53% of the total
11 12 13 14 15 16 17 18F 19F 20F
commercial real estate volume. 31% of the total transaction
Source: IMF, DekaBank volume was due to foreign investors, primarily from Asia, as
well as a global mix. Prime yields for office buildings de-
creased the most in Brisbane and Perth. Sydney and Mel-
Office markets bourne, where a significantly lower level has already been
reached, recorded comparatively moderate reductions. We
The office markets in the four major metropolitan areas of expect further small reductions in yields in 2019.
Sydney, Melbourne, Brisbane and Perth recorded high de-
mand in the first three quarters of 2018 due to good eco- Office prime yield (net)
nomic activity and continued growth in office employment.
%
At the same time, very little new construction space came 8.5
onto the market, leading to an overall decrease in vacancy 8.0
rates. In Sydney and Brisbane, the space removed from the 7.5
market due to conversion and renovation even exceeded the 7.0
6.5
new space that was added. The vacancy rate in Sydney will 6.0
likely approach a cyclical low in 2019. Due to the low supply 5.5
reserve and high rents, many companies are now choosing 5.0
4.5
locations outside the CBD. The vacancy rate in Melbourne is
4.0
also at a historical low, but will likely rise again in 2019/20 07 08 09 10 11 12 13 14 15 16 17 18
due to a higher volume of new construction. The vacancy Brisbane Melbourne Perth Sydney
rate should remain in the double digits in Brisbane and Perth Source: PMA, DekaBank
for the foreseeable future. Sydney and Melbourne recorded
steady increases in both nominal and effective rents in the
10Belgium
Economy EUR/m²/year and more are also occasionally possible. The
growth in average rents was small. The outlook for coming
Thanks to a diversified economic structure, Belgium has years is also modest in light of the challenges faced by the
made a contribution to economic growth in the Eurozone in EU.
recent years. The labour market has proven to be very ro-
bust. The unemployment rate is less than 8%, and therefore Vacancy rate and prime rents
below the Eurozone average. High national debt however
requires fiscal consolidation. This is supported by good fund- EUR psm pa %
ing terms in the capital markets and by solid economic 240 12
growth. International competitiveness, however, has contin- 10
230
ued to decrease due to increasing wage costs. This is having 8
a negative effect on the economy, which is very open. Eco- 220 6
nomic growth continued to be below-average for the Euro- 4
zone in 2017/18. We expect GDP growth of 1.4% in 2019, 210
2
the same as the previous year.
200 0
07 08 09 10 11 12 13 14 15 16 17 18
Gross domestic product Prime rent (lhs) Vacancy rate (rhs)
Source: PMA, DekaBank
% yoy
2.0
1.5 Investment market
1.0 At EUR 1.4 billion in the first three quarters of 2018, invest-
ment volume nationwide for office real estate was 29%
0.5 higher than in the same period in 2017. Brussels was the
regional investment focus, representing around 90% of the
0.0 volume. Foreign investors were responsible for a major share
11 12 13 14 15 16 17 18F 19F 20F of the total volume. Prime yields declined again in the Bel-
Source: IMF, DekaBank gian capital, but at 4.2% they remain considerably higher
than the average of the top 11 office markets in Europe.
Further downward potential is likely limited. We expect
Brussels office market moderate rent increases starting in 2021.
Demand continued to be quite restrained in 2018. Take-up Office prime yield (net)
was 246,000 m² in the first three quarters, 14% below the
%
value in the previous year. Thanks to moderate construction 6.0
activity and space conversion, the vacancy rate has decreased
5.5
steadily in previous years to 8.0%, the lowest value since
2001. The reserve of immediately available supply has fallen 5.0
to 4% in central locations, and below 15% in submarkets 4.5
outside the centre. The vacancy rate will likely stop decreas- 4.0
ing due to the pick-up in construction activity, and could 3.5
trend in the direction of 9% over the medium term. Prime
3.0
rents rose again for the first time in 2017/18, increasing a 07 08 09 10 11 12 13 14 15 16 17 18
total of 4.4% to EUR 235/m²/year. For top properties in the Brussels Ø Europe Top 11 markets
small-unit segment of the Léopold submarket, which is dom-
Source: PMA, DekaBank
inated by EU institutions, significantly higher leases of 300
11Germany
Economy creased new construction activity, no relief can be expected
on the supply side in the short term, which means vacancy
German economic activity passed its high point at the end of rates should continue to fall in top markets.
2017 and has settled again at a more moderate pace since
then. Overall economic growth was repeatedly impacted by Vacancy rate
one-off factors in 2018, such as a flu epidemic, strikes, and
%
approval problems in the automobile industry. While foreign
20
trade is having more of a negative than positive effect in
2019, domestic demand continues to provide stimulus. Con- 15
sumption is rising due to increases in employment and wag-
10
es, and soaring tax revenues mean the government is also
prepared to spend. The government’s lack of economic 5
policy initiative remains a problem.
0
07 08 09 10 11 12 13 14 15 16 17 18
Gross domestic product Berlin Düsseldorf Frankfurt
Hamburg Munich
% yoy
4 Source: PMA, DekaBank
3
Investment market
2
Commercial real estate transaction volume was around EUR
1 60 billion in 2018. This exceeded the value in the previous
year by 6% to reach a new all-time high. Office properties in
0 top locations played a major role in this. 58% of the total
11 12 13 14 15 16 17 18F 19F 20F
investment volume was generated in the BIG 7, as there are
Source: IMF, DekaBank few alternatives for big deals. 48% of the volume was due
to office buildings. Frankfurt was the leader, with a total
investment volume of EUR 10 billion, followed by Berlin (EUR
Office markets 6.8 billion) and Munich (EUR 6.0 billion). Net initial yields for
top office buildings continued to decline. We expect bottom
Although take-up in the BIG 7 rental markets in 2018 was formation to begin in 2019. Given the ongoing low interest
around 4 million m², or 6%, below the high level achieved in rate environment, increases are unlikely before 2021.
the previous year, it was still quite high compared to the
long-term average. Demand could not be adequately satis- Office prime yield (net)
fied, however, due to a shortage of space, particularly in
%
central locations. Providers of flexible working space (includ- 6.0
ing coworking) benefited from high demand by office users
and are helping to compensate for space shortages in the 5.0
short term. The low level of new construction in recent years
and the demolition and conversion of considerable space has 4.0
caused the cumulative vacancy rate to drop below 4%. Rates
3.0
were below 2.5% in Berlin, Munich and Stuttgart. Rents
continued to rise due to the discrepancy between supply and
2.0
demand. Berlin was by far the leader in this respect, followed 07 08 09 10 11 12 13 14 15 16 17 18
by Frankfurt and Cologne. We expect prime rents in class A Berlin Düsseldorf Frankfurt Munich
cities to increase by an average of around 4% in 2019, fol- Source: PMA, DekaBank
lowed by decreasing growth rates in subsequent years.
Frankfurt could see larger rent increases if demand by UK
companies rises significantly due to Brexit. In spite of in-
12Finland
Economy higher than the barely positive average rate of growth rec-
orded in the last ten years. Given the continued high vacancy
The Finnish economy continued to grow strongly in 2018. rate and recent increase in new construction activity, rent
Strong domestic consumption and investment increased increases will likely also be moderate in coming years.
considerably at the end of the period. Falling unemployment
and rising real wages should support consumption in coming Vacancy rate and prime rents
years. Domestic demand will likely remain the most im-
portant driver of growth in the future. Although measures to EUR psm pa %
increase competitiveness should compensate at least partially 320 15
for declining global demand, the overall rate of growth will 300
likely slow somewhat. Solid growth and an almost balanced 10
280
budget allowed the debt ratio to fall below 60% of GDP in
2018 for the first time since 2013. Although inflation re- 260
5
mains significantly below the EU average, the labour market 240
is approaching full capacity utilisation, which suggests up-
220 0
wards pressure on wages in coming years. 07 08 09 10 11 12 13 14 15 16 17 18
Prime rent (lhs) Vacancy rate (rhs)
Gross domestic product Source: PMA, DekaBank
% yoy
3
Investment market
2
1 The investment volume for office buildings was around EUR
1.6 billion nationwide in the first three quarters of 2018. This
0 was, as expected, considerably lower than the volume in the
-1 previous year due to an unusually large transaction in the
third quarter of 2017. Although investment demand in the
-2 market as a whole was once again primarily from abroad,
11 12 13 14 15 16 17 18F 19F 20F the share was considerably lower, at 55%, compared to
Source: IMF, DekaBank almost 84% in the previous year. The prime yield in Helsinki
fell sharply again by 30 basis points, moving even closer to
the average for the top 11 markets in Europe.
Helsinki office market
Office prime yield (net)
The solid growth of the economy is only slowly becoming
%
noticeable in the rental market of the Finnish capital. After
6.0
reaching a record high, the vacancy rate has decreased
steadily since the end of 2017 to reach a two-year low of 5.5
12.5% in the third quarter of 2018. A large part of this, 5.0
however, was due to demolition and conversion. Net absorp- 4.5
tion has been negative in previous years, as many companies 4.0
are relying on consolidation and, therefore, more efficient 3.5
use of space. Central locations, in particular, are still in de-
3.0
mand. The moderate level of demand has limited increases in 07 08 09 10 11 12 13 14 15 16 17 18
prime rents. Prime rents, which apply to not just the CBD in Helsinki Ø Europe Top 11 markets
Helsinki, but the entire city centre, increased only 1.3% Source: PMA, DekaBank
compared to the previous year up to and including the third
quarter of 2018 to EUR 306/m²/year. This is nevertheless still
13France
Economy in coming years. Large incentives are still being offered in the
region. Rent incentives, particularly for small and medium-
French economic growth was likely below the Eurozone sized units, are decreasingly sharply in the district.
average in 2018, but we nevertheless expect it to be higher
than normal for France. Although unemployment fell below Vacancy rate
10% and is therefore at its lowest point since 2012, struc-
%
tural problems in the labour market remain an important
16
obstacle to productivity. With regard to government expend-
itures, France also occupies first place in the currency union. 12
In addition to private consumption, government consump-
tion is also an important supporting pillar. The election of 8
Macron as President and his victory in the parliamentary
4
elections was initially a breath of fresh air for reforms. The
reforms implemented to date helped support sustainable 0
economic growth. Public discontent over further reforms has 07 08 09 10 11 12 13 14 15 16 17 18
now risen sharply and the first concessions have been made. Paris CBD La Défense WBD
Source: PMA, DekaBank
Gross domestic product
% yoy
2.5 Investment market
2.0
The investment volume for French office buildings was EUR
1.5 13.8 billion in the first three quarters of 2018, 29% higher
than the same period in 2017. At 90%, the region around
1.0
the French capital generated most of the demand in this
0.5 centralised country. After the large drops in previous years,
initial yields are likely very close to bottoming out. Prime
0.0
yields in the Paris CBD have remained at the low level of
11 12 13 14 15 16 17 18F 19F 20F
3.0% since the end of 2016. Yields also remained practically
Source: IMF, DekaBank unchanged in the WBD and La Défense in 2018 up to and
including the third quarter. Since the low interest rate envi-
ronment will continue for a while longer, we do not expect
Paris office market increases until 2021 at the earliest.
Take-up in the Paris region was almost 1.9 million m² in the Office prime yield (net)
first three quarters of 2018. Thanks to solid growth in em-
%
ployment, both the results of the previous year and the ten- 7.0
year average were exceeded. Take-up rose strongly for units
between 2,000 and 10,000 m² in size, while falling slightly 6.0
for even larger units. The Western Business District (WBD) 5.0
and Paris Centre West (CBD) attracted roughly a quarter of
4.0
the total space take-up. The vacancy rate fell to less than 2%
in the CBD and to 5.1% in Ile-de-France as a whole. New 3.0
and renovated space is little affected by vacancy. Although
2.0
the rate in the WBD remained above-average, it applies to a 07 08 09 10 11 12 13 14 15 16 17 18
collection of very different sub-locations. A total of around Paris CBD La Défense WBD
1.1 million m² was under construction in La Défense, the Source: PMA, DekaBank
WBD and CBD at the end of 2018. The projects in the CBD
are mainly refurbishments. The Grand Paris infrastructure
project is one of the drivers of development activity. Prime
rent in the CBD rose 4.5% to EUR 810/m²/year by the end of
September, bringing it almost back to the historical high
achieved in 2001. La Défense and the WBD also recorded
small increases. Rents will likely continue to increase slightly
14Italy
Economy Centro district. In peripheral locations, rents are declining to
considerably lower levels depending on microlocation and
Italy provided a number of surprises in 2018. First there was building quality. We expect moderate rent increases in
a coalition of left and right-wing populists, followed by a 2019/20.
direct conflict with the EU over budget issues. The budget
conflict was temporarily put on ice after Italy reached Vacancy rate and prime rents
agreement with the EU Commission. There are still doubts
about the soundness of the budget plan, and the conflict EUR psm pa %
could erupt again if there are signs that a target will be 600 20
missed. The Italian economy is suffering as a result. Growth 500
15
was already slow and was further weakened by the uncer- 400
tainty generated by this conflict. What Italy urgently needs, 300 10
however, is reforms that can unleash growth potential. Not 200
only are these lacking, but achievements gained by the pre- 5
100
vious government are also being reversed. We expect growth
0 0
of less than 1% in 2019. 07 08 09 10 11 12 13 14 15 16 17 18
Prime rent (lhs) Vacancy rate (rhs)
Gross domestic product Source: PMA, DekaBank
% yoy
2
Investment market
1
0 The transaction volume for commercial real estate in Italy
was around EUR 5 billion in the first three quarters of 2018.
-1 Of this, just under EUR 1.7 billion is attributable to office real
estate, 76% of which was traded in Milan. The (net) prime
-2
yield for Milan office real estate declined 20 basis points to
-3 3.4% in the first three quarters of 2018. The difference
11 12 13 14 15 16 17 18F 19F 20F between the CBD and Semi Centro district was 1.6 percent-
Source: IMF, DekaBank age points and between the CBD and peripheral areas 2.1
percentage points. We expect yields to bottom out in 2019.
Milan office market Office prime yield (net)
%
Take-up was 240,000 m² in the first three quarters of 2018, 6.0
around one fifth higher than the same period in 2017.
5.5
Around 30% of the space take-up was generated in the CBD
and Porta Nuova Business District submarkets. The vacancy 5.0
rate has dropped to 14% from its last high of 16.1% (2014). 4.5
Both the CBD and Porta Nuova Business District had vacancy 4.0
rates of slightly more than 5% at the end of September. 3.5
Prime space is rare. New construction volume will likely only
3.0
increase moderately in coming years. The prime rent received 07 08 09 10 11 12 13 14 15 16 17 18
for class A office space in the traditional CBD rose around Milan Rome
6% since the beginning of 2018 to EUR 550/m²/year. The Source: PMA, DekaBank
highest value in the Porta Nuova Business District was EUR
500/m²/year. Very few leases, however, are concluded in this
price class. Prime rent reached EUR 300/m²/year in the Semi
15Netherlands
Economy slowed markedly after the large increase in prime rents in
2017. A new record of EUR 395/m²/year was set in 2018. A
The Netherlands economy continued to expand. Although higher level of construction activity and an expected increase
private household debt in the form of long-term loans re- in net additions expected starting in 2021 should drive the
mains high, it is decreasing. Private consumption plays an vacancy rate above the 10% mark again and lead to an end
important role in overall economic growth and is benefiting of the rent cycle.
from a very low unemployment rate of less than 4% and
rising home prices. Due to the high degree of openness of Vacancy rate and prime rents
the economy, good position in the global value chain and
high international competitiveness, foreign trade remains an EUR psm pa %
important driver for the economy. We expect the extraordi- 500 20
nary growth achieved in 2017 to be followed by slower 400
15
growth in 2018/19, although still likely at a rate higher than
300
the Eurozone average. 10
200
Gross domestic product 5
100
% yoy 0 0
3 07 08 09 10 11 12 13 14 15 16 17 18
Prime rent (lhs) Vacancy rate (rhs)
2 Source: PMA, DekaBank
1
0
Investment market
-1
Office buildings generated an investment volume of around
-2 EUR 4.4 billion in the first three quarters of 2018 in the
11 12 13 14 15 16 17 18F 19F 20F
Netherlands, 9% below the volume in the previous year. The
Source: IMF, DekaBank capital city's share of the investment volume fell from 53%
to 28%. The large decrease recorded by Amsterdam prime
yields in previous years was followed by another 20 basis
Amsterdam office market point drop to 3.5% at the end of the period, which corre-
sponds to the low average yield of the top 11 markets in
Take-up was 200,000 m² in the first three quarters of 2018, Europe. We expect yields to bottom out in 2019. Due to the
15% below the high level achieved in the previous year. ongoing low interest rate environment, we do not expect
Thanks to large deals, the results achieved in 2017 were the increases until 2021 at the earliest.
highest since 2006. One of the driving factors is the expan-
sion of flexible office space providers, which are also respon- Office prime yield (net)
sible for quite a large share of space take-up throughout
%
Europe. Good digital infrastructure is generating lively de- 7.0
mand by technology firms. In addition to increasing demand,
demolition and extensive conversion of obsolete office space 6.0
and restrictive planning requirements have also helped re-
duce the vacancy rate sharply in previous years. Most of the 5.0
space conversion took place in the western and southeastern
submarkets outside the city centre. The vacancy rate fell 4.0
strongly again from 10% the year before to 7.5%, the low-
3.0
est rate since 2001. The previously very modest level of con- 07 08 09 10 11 12 13 14 15 16 17 18
struction activity has picked up. Completions will likely be Amsterdam Ø Europe Top 11 markets
120,000 m² in 2019, somewhat higher than the previous Source: PMA, DekaBank
two years. For the first time in six years, net additions are
once again expected to be positive in 2019. Construction is
concentrated in the South Axis and West districts. Growth
16Austria
Economy new construction areas close to the city centre, rising from
EUR 204 to 222/m²/year in the area of the main railway
2017 marked the high point of the current upswing in Aus- station. We forecast small increases in rents in 2019/20.
tria. The economy cooled significantly after a strong first
quarter in 2018, and appears to be settling approx. at its Vacancy rate and prime rents
potential at the end of 2018. Private consumption continues
to play a reliable part, while investment growth will weaken EUR psm pa %
somewhat. Global and European uncertainty – the trade 300 8
war, Italy, Brexit – are also dampening investment sentiment 280
6
in Austria. The slowdown in global economic growth is also
260
playing a part, and is also reducing the stimulus due to net 4
exports. Gross domestic product will likely increase 1.9% in 240
2019, once again greater than the rate in Germany. 2
220
200 0
Gross domestic product 07 08 09 10 11 12 13 14 15 16 17 18
Prime rent (lhs) Vacancy rate (rhs)
% yoy
4 Source: PMA, DekaBank
3
Investment market
2
Around EUR 800 million was invested in office buildings in
1 Austria between January and September 2018. This was a
return to normal after the extraordinary volume achieved in
0 the previous year. The lack of core properties also played a
11 12 13 14 15 16 17 18F 19F 20F
role. Office property represented 30% of the total commer-
Source: IMF, DekaBank cial volume. The prime yield in Vienna fell 20 basis points to
3.7%. 4.1% was achieved in locations around the city cen-
tre, and 4.65% in peripheral locations. We expect a bottom-
Vienna office market ing out to take place in 2019.
Office space take-up was 204,000 m² in the first three quar- Office prime yield (net)
ters of 2018, an increase of 76% over the same period in
%
2017. 2018 as a whole, however, will probably not quite 6.0
reach the ten-year average of 322,000 m². Some of the
5.5
largest contributions were due to leasing by service providers
and the public sector, followed by retail companies. The 5.0
vacancy rate increased slightly to 5.5%. Completions will 4.5
likely be around 280,000 m² in 2018, which is significantly 4.0
greater than the five-year average of 133,000 m². 160,000 3.5
m² of this, however, is due to the new Bank Austria campus
3.0
on Lassallestraße. Around 210,000 m² was under construc- 07 08 09 10 11 12 13 14 15 16 17 18
tion in the third quarter, with around 40% already pre- Vienna Ø Europe Top 11 markets
leased. Prime rents in the city fell 1% to EUR 276/m²/year in Source: PMA, DekaBank
the first half of 2018, as no leases were concluded for top
properties. Rents have increased, on the other hand, in the
17Poland
Economy part of the city centre, 90% of which was speculative. In the
medium-term, vacancy rates will therefore likely increase
The Polish economy has benefited from the booming labour again. Prime rent in the CBD rose slightly for the first time
market and the strength of private consumption in recent again in the third quarter of 2018 to EUR 246/m²/year. War-
years. The expansive stimulus of fiscal policy should decrease saw nevertheless remains a very tenant-friendly market, with
starting in 2019, meaning that GDP growth will likely weak- the largest lease incentives in all of Europe. We only expect
en somewhat. There is no indication of a tightening of mon- marginal increases in rents in 2019/20.
etary policy soon. With the average rate of inflation falling
below the 2.5% target, the Polish Central Bank expects to Vacancy rate and prime rents
keep its key interest rate on hold at 1.5% in 2019. While
economic growth is not creating any serious concerns, atten- EUR psm pa %
tion is turning to political factors. The PiS government’s 350 20
confrontation with the EU over its controversial domestic 300
250 15
policy course of restricting the rule of law will likely continue.
200
A number of proceedings have been initiated against Poland 10
150
at the European Court of Justice, along with a procedure
100 5
under Article 7 of the Treaty of the EU. Due to the lack of
50
unanimity in the EU Council, our main scenario does not
0 0
include extensive sanctions. EU subsidies might, however, be 07 08 09 10 11 12 13 14 15 16 17 18
reduced starting in 2021, which could depress investment Prime rent (lhs) Vacancy rate (rhs)
activity in the medium term.
Source: PMA, DekaBank
Gross domestic product
% yoy Investment market
6
5 Office investment volume was approximately EUR 2.1 billion
in Poland during the period from January to September
4
2018, three times the volume in the same period in 2017.
3 Commercial property represented 40% of the total volume.
2 The investment market was dominated by foreign capital
from the US and Western Europe. The prime yield (net) in
1
Warsaw decreased 15 basis points to 4.75% by the end of
0 the third quarter. The difference in yields between the city
11 12 13 14 15 16 17 18F 19F 20F
centre and locations outside the centre was up to 2 percent-
Source: IMF, DekaBank age points. We expect a bottoming out to take place in
2019.
Warsaw office market Office prime yield (net)
%
Take-up was around 400,000 m² in the first three quarters 7.0
of 2018 (not including lease renewals) and the figure for the
year as a whole will likely exceed the record value in the 6.0
previous year (520,000 m²). Demand is concentrated in the
central business district (CBD) and neighbouring locations of 5.0
the city centre. Advisory and financial service providers and
industry were the most active, thanks to the ongoing good 4.0
state of the economy. A number of providers of flexible
3.0
office space have also now entered the market. The vacancy 07 08 09 10 11 12 13 14 15 16 17 18
rate dropped significantly compared to the previous year to Warsaw Ø Europe Top 11 markets
10.6%. It was higher in locations outside the city. Pressure Source: PMA, DekaBank
has decreased somewhat from the supply side, but Warsaw
continues to have the largest volume of new construction
relative to existing stock. At the end of 2018, approximately
0.6 million m² was under construction, primarily in the west
18Sweden
Economy in 2017, the growth in prime rents fell by half to 6% in the
first three quarters of 2018. Prime rents are now SEK
The Swedish economy will likely to continue to grow at a 6,700/m²/year. The growth rate will likely continue to fall in
constant rate. Government finances are sound and the bank- coming years.
ing system is well capitalised. The high demand for residen-
tial real estate is restrained by higher capital requirements Vacancy rate and prime rents
and restrictions on loan-to-value ratios. In spite of a surpris-
ingly weak third quarter in 2018, which was mainly due to SEK psm pa %
temporary factors, the central bank raised its key interest 7,000 14
rate for the first time again in December. Worries that infla- 12
6,000
tion might not be able to establish itself sustainably above 10
5,000 8
the 2% target nevertheless continue. The high level of ca-
4,000 6
pacity utilisation, however, suggests the Riksbank will con-
4
tinue to pursue an exit from its ultra-loose monetary policy, 3,000
2
even if it takes a long time. Even though rising interest rates
2,000 0
and falling global demand will likely slow growth in coming 07 08 09 10 11 12 13 14 15 16 17 18
years, Sweden remains on a solid growth path for the fore- Prime rent (lhs) Vacancy rate (rhs)
seeable future.
Source: PMA, DekaBank
Gross domestic product
% yoy Investment market
5
4 The investment volume of EUR 1.9 billion for Swedish office
real estate in the first three quarters of 2018 was almost
3
unchanged compared to the two previous years. Around half
2 of the volume was generated in Stockholm in the first half of
1 the year. Demand was once again mainly due to domestic
investors. The prime yield continued to decline in Stockholm,
0
although only slightly by 10 basis points to 3.2%. It there-
-1 fore remains low for Europe. Given the interest rate turna-
11 12 13 14 15 16 17 18F 19F 20F
round, anti-inequality measures and small decrease in eco-
Source: IMF, DekaBank nomic growth, yields should have largely bottomed out. We
do not expect yields to rise before 2021.
Stockholm office market Office prime yield (net)
%
The rental market continued its dynamic growth in 2018. 6.0
Take-up rose considerably following a weak previous year.
5.5
Demand was concentrated mainly in the city centre and
areas with good transport access. The vacancy rate reached 5.0
7.3% in the third quarter of 2018, the lowest level in 17 4.5
years. Local differences do, however, exist. Kista, in particu- 4.0
lar, is falling behind the general trend with its double-digit 3.5
vacancy rate of more than 15%. The addition of new space
3.0
likely picked up considerably in 2018 compared to the previ- 07 08 09 10 11 12 13 14 15 16 17 18
ous year, and a high new construction volume of around Stockholm Ø Europe Top 11 markets
200,000 m² is also expected in 2019. This, combined with a Source: PMA, DekaBank
small decrease in economic growth, considerably reduces the
outlook for rents. After a still respectable increase of 12.5%
19Spain
Economy development activities to pick up here in the future. This,
combined with an economic slowdown, will likely end the
Economic growth will likely be lower in 2018 than the previ- rent cycle in both markets. Prime rents rose 5% by the end
ous year, but will still be among the highest in Europe. of the third quarter of 2018 in both Barcelona and Madrid to
Growth should only be marginally lower at 2.3% in 2019. EUR 282 and 384/m²/year, respectively. They are now 13%
While net exports are having a braking effect, domestic and 20% below the highs reached in 2008 before the out-
demand, in particular consumption, remains a reliable source break of the financial crisis. Average rents rose particularly
of stimulus due to the sustained improvement in the labour sharply in Barcelona in 2018. Both prime and average rents
market. Investment will slow somewhat following the high will likely continue to rise in 2019, although at a slower rate.
rate of growth in 2018. The previous two-party system (plus
regional parties) is turning into a multi-party system. In addi- Vacancy rate and prime rents in Madrid
tion to Podemos (left-leaning) and the liberal Ciudadanos
party, which are already represented in parliament, a right- EUR psm pa %
wing populist party has now also made its way into the 500 14
Andalusian regional parliament with double-digit results. The 12
400 10
efforts of the social democratic minority government to
8
obtain a majority and Catalonia's independence efforts pre- 300
6
sent further challenges.
200 4
2
Gross domestic product
100 0
07 08 09 10 11 12 13 14 15 16 17 18
% yoy
Prime rent (lhs) Vacancy rate (rhs)
4
3 Source: PMA, DekaBank
2
1
0
Investment market
-1
Office investment volume was high in Spain, reaching EUR
-2
3.1 billion by the end of September 2018. This includes the
-3 Axiare takeover by Immobiliaria Colonial. Madrid's share was
11 12 13 14 15 16 17 18F 19F 20F
78%. There are signs that yields are bottoming out following
Source: IMF, DekaBank the long decline starting in 2014. The low levels in Madrid
and Barcelona remained practically unchanged at 3.4% and
3.6%, respectively. Due to the ongoing low interest rate
Office markets environment, we do not expect increases until 2021 at the
earliest.
The rapid economic growth is also reflected in the demand
for space in 2018. Take-up in the first three quarters was Office prime yield (net)
280,000 m² in Madrid and 230,000 m² in Barcelona, which
%
was 7% higher on average than the same period in the
6.0
previous year. In Barcelona, a large share of the take-up was
5.5
generated by the trade & industry sector and business service
providers, including providers of flexible office space. The 5.0
vacancy rate continued to decline in both cities. Barcelona 4.5
recorded another sharp decrease to 8.5% thanks to further 4.0
space conversion. That means the rate is now almost half 3.5
what it was at its high of 16% in 2014. Construction starts
3.0
increased again during the course of the year in Barcelona. 07 08 09 10 11 12 13 14 15 16 17 18
Completions and net additions were already comparatively Barcelona Madrid
high in 2018 following previous weak years. Madrid, on the Source: PMA, DekaBank
other hand, has relatively little space under construction
compared to the existing stock. We nevertheless also expect
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